Avoid these three accounting errors to ensure a better tax season.
When filing your business tax returns every year, it is very easy to find you’ve made a litany of accounting errors. These mistakes can cause severe problems for your business. For example, the IRS could set up an audit that finds you didn’t pay enough money. Even worse, you could discover that your finances are in such a sorry mess that you can’t figure out where you went wrong.
That’s why it is essential to understand these common accounting errors and know how to avoid them. We will briefly discuss each error. Then we’ll give you a simple solution for each one, so you never make these mistakes again.
#1: Trying to Perform Mental Accounting
Have you ever tried to perform simple accounting measures in your head or estimated important accounting information? This mistake is one of the worst you can make. Too many people think their mental calculations are good enough. Unfortunately, these estimations are usually very wrong almost every single time.
Avoiding This Mistake: This error can be one of the most costly you can make. However, it is also one of the easiest to avoid. Never make an accounting decision without sitting down to calculate your finances either on paper or with software. This step ensures you don’t make any mental errors.
#2: Mixing Up Debits and Credits
It might seem impossible that you could make a mistake this elementary. However, people do it all the time when they are inputting their accounting information. It usually happens when people are in a hurry or trying to do too much at once. Obviously, putting a credit in the debit column is going to throw off your calculations in a big way.
Avoiding This Mistake: The easiest way to avoid this mistake is to handle your debits and credits at separate times. For example, instead of inputting both as they occur, focus entirely on your debits column and then move to the credits. Also, make sure to double-check the type before inputting any financial info.
#3: Working in the Wrong Financial Period
Those who work with a significant amount of accounting paperwork may easily mix up information from past financial periods and use them in current accounting processes. This mistake can lead you to report profits or losses twice and create an unfortunate unbalance in your financial information.
Avoiding This Mistake: Archive your financial information from a previous quarter by moving it to paper storage. Save it in an archive folder on your accounting software. This makes you much less likely to make this mistake. You also need to make sure to place all your supporting financial paperwork, such as receipts, in their proper archive section.
Making Sure Your Accounting is Error-Free
By following these simple steps, you can make sure your accounting method is free of any mistakes. Also, you’ll create a more prosperous money-tracking system that helps streamline your operation. Just as importantly, you can stay out of the cross-hairs of the IRS. As an added bonus, you’ll enjoy a more straightforward tax season at the beginning of every year.
Don’t hesitate to implement each of these simple techniques into your business accounting. They are a powerful way of keeping your accounting easier to understand. If you need help implementing any of these methods, please don’t hesitate to contact us to learn more.